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Tuesday, July 31, 2012

Miner Xstrata reported an 18% drop in copper volumes in the first six months of 2012, as it replaces ageing operations and undertakes expansion that will boost production in the second half.

Xstrata is in the throes of a merger with commodities trader Glencore, which made a $26-billion takeover bid for the miner earlier this year. Glencore, Xstrata's top shareholder, is currently locked in talks with rival investor Qatar Holdings over the terms of the proposed deal..

Xstrata, the world's fourth-largest copper miner, said production of the red metal dropped to 354 612 t from 434 046 t/y ago.

It was hit by the transition from mines like the Ernest Henry openpit in Australia to new mines and expansion projects. It was also dented by lower recoveries at the world's third-largest copper mine, Collahuasi, jointly owned with Anglo American, hit by poor weather, safety stoppages and a broken ball mill.

Mined coal, a key earner for Xstrata along with copper, saw consolidated production rise 13% to 43.4-million tons in the first half, as volumes for both thermal and coking coal improved in the second quarter in relation to the first.

Nickel rose 3% year-on-year to 52 800 t. Zinc, in which Xstrata will become the world's top player following the Glencore tie-up, was flat.

Friday, July 13, 2012

As Standard & Poor's lowered its nickel and aluminum price assumptions to $7.50/lb and 90-cents per pound, respectively, price forecasts for other metals remain unchanged for this year.

Standard & Poor's Ratings Services has lowered its price assumptions for nickel and aluminum for the rest of this year, noting that "most metals prices are unlikely to fall much further under our base-case scenario for 2012."

"Our revised assumptions take into account the notable decline in spot prices for nickel and aluminum since our last update in January 2012, continued oversupply in the two markets, and the currently uncertain global economic outlook," wrote S&P Credit Analysts Andrey Nikolaev and Marie Shmaruk in an advisory note published Thursday.

Since S&P's January update, aluminum and nickel have fallen 11% and 16%--the steepest drops among the base metals. "The key reason for this underperformance, in our view, is the oversupply of the two metals," said the analysts. "As for other metals, nickel and aluminum prices are also under pressure from the strengthening U.S. dollar and market concerns about Chinese demand growth."

"We have left our 2012 price assumptions for the other metals and our 2013 and long-term price assumptions on all metals unchanged because we continue to factor in our assumption of a soft landing in China, where we forecast GDP growth of about 8% annually in 2012-2012," S&P advised. "We also assume virtually flat GDP in Europe and about 2% growth in the U.S. for 2012."

S&P also suggests that for most metals, "cost profiles of major producers will likely not allow further substantial price deterioration without a noticeable decrease in production, which we do not anticipate in our base case."

Meanwhile, S&P advised it is leaving its long-term price assumptions for industrial metals unchanged "as we currently do not anticipate substantial changes in the long-term supply-demand balance."

S&P's metals price assumptions for the rest of this year include 90-cent per pound aluminum; $3.25/lb for copper; $7.50/lb nickel; 80-cents per pound zinc; and $1,300/oz gold.

Base-case scenarios for metals supply-demand in 2012

S&P anticipates moderate growth in aluminum demand this year. Therefore, the agency lowered its price assumption from 95-cents per pound to 90-cents per pound for this year.

Moderate growth in copper demand and nickel demand is anticipated in S&P's base-case scenario. S&P lowered its price assumption for the rest of this year from $8 per pound nickel to $7.50/lb.

S&P also forecasts moderate growth in zinc demand. "The current substantial inventories create a considerable risk for the prices, however. At the same time potential closures of several major mines in 2013-2014 could substantially improve the supply/demand balance and support prices," said the analysts.

Contrary to industrial metals, gold remains elevated as investors still seek a safe haven, as well as a hedge against inflation risks, S&P advised.

Wednesday, July 11, 2012

Rovuma Resources is due in 2014 to start exploration of nickel deposits found in Montepuez , the provincial director for Mining Resources and Energy for Cabo Delgado, Ramiro Nguiraze told Mozambican newspaper Notícias.

The start of exploration of the deposits, which have estimated reserves of 23 million tons, will require a railway line to be built to transport the nickel, as well as other natural resources such as marble, as well as an increased electricity supply.

“Exploration of these resources is a big challenge for the government given that for the nickel alone the requested voltage is quite high,” said Nguiraze noting that a high voltage power line of at least 110 Kva would need to be built along with a sub-station.

Recognising that the road to Montepuez will not be able to stand up to regular transport of the nickel and marble, the provincial director said that studies were being carried out by the central government with a view to building the railway.

Nickel is a metal that has a variety of applications, specifically production of metal alloys used in the automotive and aeronautical industries.

Thursday, July 5, 2012

Knight Vinke on Tuesday became the latest major shareholder of Xstrata (LON:XTA) to voice opposition to the proposed $58 billion deal with Glencore International (LON:GLEN) if the terms of the deal – billed as a 'merger of equals' – are not improved.

The New York-based asset manager joins Qatar's sovereign wealth fund and other institutional shareholders – bar BlackRock, the miner's top shareholder – which want more than the 2.8 shares for every one of Xstrata that the Swiss commodity trading giant is offering. Combined these entities have enough votes to block the deal.

The Financial Times reports like Qatar, Knight Vinke is looking for a ratio of 3.25:1. The deal was pushed to the verge of collapse last week after Qatar, which owns close to 11% of Xstrata, unexpectedly opposed the deal's terms.

In a classic game of brinkmanship Glencore, following an 'emergency meeting' with the gas-rich Middle Eastern nation's representative declared that it is willing to kill the merger because a deal at a 3.25 ratio overvalues the miner.

Since the news of the bid first broke at the beginning of February, Glencore has lost 37% of its market value and is now worth $32 billion in London. Xstrata has not fared any better – it has lost $23 billion of its worth on the London Stock Exchange over the same period.

Based on a 2.8 ratio, this translates into a more than $35 billion decline in the value of the deal. The resource-heavy FTSE-100 index is down less than 3% over the same period, while the Dow Jones has eked out single digit gains.

Xstrata last week also moved to appease shareholders, announcing its planned executive retention payouts would be paid entirely in shares, rather than in cash and on top of that, the more than generous $342 million in bonuses for senior management – including the $44 million for CEO Mick Davis – would depend on the level of cost savings achieved through the merger.

Reuters reports while both Davis and Glencore CEO Ivan Glasenberg would suffer blows to their reputations as dealmakers if the merger should collapse other parties stand to lose more.

Xstrata shares – held up by the deal while other miners have been sold off – could drop between 20% – 30% handing those Xstrata shareholders currently opposing the deal nothing but a Pyrrhic victory. It could also prove damaging for Qatar, which has plonked more than $4 billion on Xstrata.

The two companies are spending a combined $200 million on advisers and legal counsel to push the deal through and a collapse would be a blow to a long list of bankers, including Citigroup, Morgan Stanley, JP Morgan and Deutsche Bank.

Apart from shareholders blocking a deal the European Union is stepping up scrutiny of the mooted merger after steelmakers and other European players "raised fears that the deal could create too powerful a player" in the market for zinc, nickel and coal.

Xstrata said it expects formal notification of the transaction from the European Commission to take place in mid to late August. The July 12 meeting to vote on the deal has been pushed back to October.

With revenues in excess of $200 billion Glenstrata, as it has been dubbed, would become the 4th largest miner on the planet with Xstrata's current management responsible for over 80% of the combined group's earnings, 150 mining and metallurgical assets and 20 major growth projects.

Tuesday, June 26, 2012

With the revised prefeasibility study (PFS) for the Dumont nickel project completed, TSX-listed Royal Nickel on Monday said it would now focus on securing a partner to develop the project in Québec.

The company said it would start formal discussions with interested parties and that it would invite prospective partners to submit proposals.

"The hard work continues as our team has turned its full attention to key near-to-mid-term milestones, such as the project partnership and finance process and advancing the feasibility study, which is already under way,” CEO Tyler Mitchelson said.

Royal Nickel recently announced the results of its updated PFS for the Dumont project, boosting its net present value by 31% to $1.4-billion.

The improved study also lifted its after-tax internal rate of return to 19.5%, from 17% in the November PFS.

Yearly nickel production would average 108-million pounds during Dumont’s 19-year mine life. It would then produce 63-million pounds a year for the subsequent 12 years from processing the lower-grade stockpile.

Friday, June 15, 2012

While the world's mining sector faces tough times ahead, the absolute decline will not be as severe as it was during the global financial crisis, S&P forecasts.

In what likely will be a period of ups and downs, mining companies around the world share significant hurdles: slowing growth in the Chinese economy as well as economic uncertainty in Europe and the United States.

"Slowing growth in the Chinese economy will, in our view, almost certainly have an outsized effect on metals and mining companies around the world," Standard & Poor's warned in a recent report.

"And slowing economic growth in other markets will likely affect metals and mining companies too. It may be only a matter of the degree to which they suffer," S&P Primary Credit Analysts Michael Scerbo and Suzanne G. Smith advised.

The good news is Standard & Poor's Ratings Services only see a 10% chance that the Chinese economy could suffer a hard landing with growth slowing from the annual average of more than 9% in the past few years to 5%. However, even if the Chinese economic expansion slowed to only 8%--and because growth could even be slower in China's construction sectors, "the world's world steel producers could suffer most."

In North America, much of the current risk for mining stems from domestic conditions, says S&P. Construction steel markets are still weak, although industrial demand has picked up a bit, thanks to auto production and equipment manufacturing. "But even with demand slowly improving, the risk of oversupply and pricing volatility remains," the analysts advised.

Meanwhile, U.S. coal producers have already felt the impacts of an unusually warm winter and the fact power generators have been switching from coal to natural gas because of lower gas prices, S&P noted. The bad market for steam coal, which power plants use to generate electricity, has caused prices to plummet.

At the same time, global prices for met coal, which producers used to make steel, have declined and earnings from met coal will not offset the significant decline in steam coal demand and pricing,

Nonetheless, S&P forecasts not all steel-related industries will suffer at the same rate.

Brazil will benefit because it hosts some of the world's most prolific reserves and quality iron ore. Although China has tried to exploit its own iron ore reserves, domestic production meets just 30% of its needs.

Even with Chinese steel production at record highs, large Chinese steel companies are losing money for the first time in 10 years "and overcapacity and slowing demand may continue to weigh on steel prices, perhaps pushing them further down," the analysts observed.

"Standard & Poor's believes that while a sharp slowdown in Chinese economic growth could reverberate through the iron ore market, we don't expect prices to weaken significantly. Even if Chinese steel production grew at a much slower pace, iron ore producers would have to increase capacity significantly to meet demand."

However, in the Asia-Pacific region, S&P says the slowdown in China and weakening commodities prices could hurt metals and mining companies, which face rising costs, softening prices, and oversupply problems.

"Times could be very tough, in our view, for producers of commodities such as zinc and nickel, which are used in heavy industry," according to Scerbo and Smith. "We think prices on these could suffer the most in a medium- or hard-landing scenario in China.

"And we have a negative outlook on the metals sector, reflecting our view that steel and aluminum producers will continue to struggle with softening demand growth and abundant supply. Aluminum prices, in particular, show no immediate signs of having reached bottom-or doing so any time soon."

"Still , while we are forecasting a deceleration in demand in the Asia-Pacific metals and mining sectors due primarily to the slowdown in property development and infrastructure investment in China, we believe the absolute decline may not be as severe as it was during the global financial crisis," the analysts advised.

Monday, May 21, 2012

First Nickel Inc. ("First Nickel", "FNI" or the "Company") (TSX:FNI) is pleased to announce that it has entered into a US$10 million revolving credit facility with The Bank of Nova Scotia ("BNS facility") with an initial 2 year term. Funds from the BNS facility will be used to finance working capital requirements for the Lockerby mine and for general corporate purposes.

FNI is also pleased to announce that it has freed up capital tied to its Lockerby mine closure plan, replacing a letter of credit with a surety bond. The bond guarantees the full cost of the $5.9 million closure plan with the Company posting $2.4 million as cash security in support of the bond. The letter of credit had previously been secured by a $5.9 million restricted term deposit which is now fully available for the Company's use.

"These two transactions further strengthen our balance sheet providing $13.5 million of additional liquidity," said Steven Cresswell, Vice President and Chief Financial Officer.

About First Nickel Inc.

First Nickel is a Canadian mining and exploration company. The Company's mission is to be the most dynamic North American emerging base metal mining company in which to work and invest and to be respected in the communities in which we operate. FNI is in the process of ramping up production at its Lockerby nickel / copper mine in the Sudbury Basin in northern Ontario. Once the Lockerby Mine reaches full production (expected by end of 2012), it is expected to produce at a rate of approximately 10 million pounds of nickel and approximately 7 million pounds of copper annually, providing a strong base of cash flow from which to grow the Company. In addition to the Lockerby nickel mine, the Company owns exploration properties in the Sudbury Basin, the Timmins region of northern Ontario, and the Belmont region of Eastern Ontario. First Nickel's shares are traded on the TSX under the symbol FNI.

Tuesday, March 6, 2012

Swiss-based Glencore International (LSE: GLEN) posted income before significant items of US$4.06bn in 2011, an increase of 7% on higher revenues, metal prices and output, according to the company's preliminary results.

Income attributable to equity holders more than tripled to US$4.05bn from US$1.29bn in 2010.

Total revenues from the metals and mining segment rose to US$52bn from US$45.2bn due to higher average realized zinc, copper, lead, gold, alumina, aluminum, nickel and iron ore prices.

One of the world's largest traders of commodities and raw materials, Glencore owns 34.5% of compatriot resource group Xstrata (LSE: XTA) with which it has agreed a "merger of equals." The operation is pending approval from the companies' shareholders.

In Latin America, Glencore has assets in Argentina, Bolivia, Colombia and Peru.

Thursday, March 1, 2012

As Canadian exports of iron ore and uranium to China continue to increase dramatically, Beijing will benefit from higher-quality ore and diversification of supply sources, predicts economist Patricia Mohr in the latest Scotiabank’s Commodity Price Index.

Mohr said that huge changes taking place in Canada’s resource industry have caused a reweighting of the Scotiabank Commodity Price Index, which measures price trends in 30 of Canada’s major exports.
The trade weight of metals and mineral in the index has risen slightly from 26.8% to 30.1%, “partly due to the inclusion of the rapidly expanding iron ore trade from Labrador/northern Quebec to China as well as Europe,” the report says.

“Significant industry growth in potash, coking coal, gold and nickel – as well as the inclusion of iron ore – has boosted the weight of metals and minerals within the index,” it says.
Base metals prices “rallied strongly, as investment/hedge funds shifted from short to long positions, in light of better-than-expected U.S. economic indicators, very accommodative monetary policy in the United States (with the Fed revealing that it may keep the funds rate at rock bottom levels through late 2014) and anticipation of ‘pro-growth’ policy in China.”

U.S. motor vehicle assemblies are expected to lift from 8.34 million annually to 9.7 million during the first quarter of the year, increasing demand for copper, zinc, aluminum and steel.

LME copper prices, notes the report, surged “as high as US$3.91 per pound on January 27-yielding an exception profit margin of 53.5% over average world breakeven cost including depreciation.”
“Copper prices will average higher in February than in January – as will zinc, nickel and aluminum – though copper has eased back to US$3.83 late-month,” Mohr forecasts. “Chinese buyers bought copper cathodes heavily last October…contributing to higher stocks. Much of this metal will be used as collateral for bank loans.”

Other index changes
Oil and gas now account for 40%of the index, up from just 17% previously. Forest products have been reduced to just 15%, down from 40%. This represents the biggest redesign of the index since Mohr created it 25 years ago.

“We’re becoming an economy that is very oil-dominant and this is very important to recognize because it has public policy implications,” Mohr said.

With crude oil and refined petroleum products now accounting for a huge 28.5% of Canada’s net exports of resource-based materials, Mohr said that building adequate pipeline infrastructure to tap export markets — particularly the growth markets of Asia – would be vital for the Canadian economy.

The Scotiabank Commodity Price Index – the first Index designed to track commodity prices of interest to Canadians and Canada’s resource producers – was first introduced in 1987. Index values were estimated back to 1972 to show the impact of the 1973 Arab oil embargo. The Index has only been re-weighted once before in April 1999, with the weight of each component based on its export value in 1995-97, with the exception of crude oil and refined petroleum products, uncoated freesheet paper and linerboard, where net exports were used.